Kim Moody: Taxpayers wasted money and tax professionals lost sleep until they were told the rules had changed
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One of my favorite vocalists is the Queen of Soul Aretha Franklin. I especially love her soulful style, which was showcased beautifully on “Respect,” one of her best anthems. The way he spelled out the word “respect” in the song was classic.
When the Canada Revenue Agency announced last week that Bare Trusts would be exempted from the much-deplored new trust reporting requirements, this song immediately came to mind. While the announcement was certainly welcome, it came just five days before the trust’s application deadline.
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Meanwhile, tax professionals and trust taxpayers are struggling mightily with the new trust reporting regime, which requires significant and invasive disclosures of trust beneficiaries, settlors, and trustees. These “new” rules were first proposed in the 2018 federal budget to take effect in the 2021 tax year, but have been delayed twice, so they will only take effect in the 2023 tax year.
However, in 2022, the Treasury Department included a surprising reporting requirement in its draft bill that would also require reporting of “bare trusts” (a type of trust similar to an agency relationship that is ignored for all purposes of the Income Tax Act). Added.
There are hundreds of thousands of bare trusts in Canada, most of which are very benign. The Department of the Treasury received significant feedback on why bare trusts should be exempt from pending reporting requirements. However, such feedback was simply ignored.
The CRA is tasked with administering the new reporting rules and, along with the tax professional community, will be at the forefront of determining whether a legal relationship is a reportable trust, a bare trust, or both. I had a hard time.
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As an example, my colleague Jay Goodis of Tax Templates Inc. and I, through our organization Canadian Tax Matters, hosted a webinar on the new fiduciary reporting rules that was attended by over 500 tax professionals. did. We answered hundreds of questions about the application of the new rules during and after the session. The question was very difficult to answer.
Five days before the filing deadline, the CRA announced that bare trust filings would be exempt. This is after practitioners have wasted a large amount of time determining whether legal relationships need to be reported. Such time would result in significant professional costs being incurred in reliance on the taxpayer.
Some cynics might say, “Don’t tax professionals benefit from these rules by increasing their fees?” Let’s just say that comments like this aren’t even worth replying to. Just about every competent tax professional I know is paying more and more time at a time when they already have more work than they can handle and are already pressed for time because there is a huge shortage of accountants. They don’t like to spend a lot of money. Especially when it is questionable what such reporting would do or benefit Canada as a whole.
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If the above story sounds familiar, you’re right. The Underutilized Homes Tax (UHT) fiasco comes to mind. To oversimplify, Canadians will be exempt from this new tax. However, if you owned real estate through a Canadian trust, partnership or corporation, you still had to file a return to claim the exemption. Failure to do so risked significant penalties.
For the 2022 tax year, the deadline for filing the required UHT return was April 30, 2023. Just before that deadline, the CRA announced his extension until October 31, 2023. On the afternoon of October 31, 2023, the agency announced his second extension. The deadline for submission is April 30, 2024.
Although such a late announcement is still welcome, let’s think about it seriously. By that time, most of the work and effort has already been completed. If such submissions are not required or are not due on that date, a huge amount of time and effort will be wasted.
Do experts want mandatory declaration? Of course not. What they want is simple respect. This train accident was easy to predict, and the prediction was correct. Instead of completely ignoring early feedback and disrespecting Canadian taxpayers and their advisors, it could and should have listened more to the feedback before implementation.
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For the past two months, affected professionals have lost sleep and worked nights and weekends, only to be told hours before the deadline that the rules would change. Over the past four years, the CRA’s staff has doubled, the CRA’s budget has increased significantly, the rate of questions the CRA gets wrong on calls from taxpayers is high, the wait time for the CRA to call is long, and the CRA’s evaluation Contrast that with the longer time it takes. Sometimes we are finally able to address a taxpayer’s problem after many years, but the deadline for providing the required information is short, often 30 days.
It is well known that Canada has serious productivity challenges. Even the Bank of Canada leadership recently commented on this, saying it was time to “break the glass” and address these issues. The example of the UHT and trust reporting debacle certainly contributes to these challenges when taxpayers and their advisors struggle for months only to be told at the last minute something to the effect of, “You’re just kidding.” You will have to do so. That’s just a lack of respect.
I will continue to beat the drum that the time has come for full-scale tax reform and review. We need to address Canada’s productivity challenges and restore simple respect for Canadian taxpayers.
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Additionally, debacles such as UHT, trust reporting, and the 2017 private corporation tax proposal have shined a strong light on the fact that it is time for a serious discussion about the development of tax policy in Canada.
Placing such policy formulation under the exclusive authority of the Ministry of Finance should be considered. It must be a much more open and transparent process than the secretive and closed process that currently exists, with limited stakeholder involvement where deemed necessary. At the very least, the lines of communication between finance, CRAs, and stakeholders need significant improvement.
Recommendations from the editorial department
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CRA changes policy, exempts bare trusts from new regulations
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Income averaging is an old idea worth revisiting
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New trust reporting rules are daunting and costly if you fail to submit on time
Aretha, it’s time to sing the national anthem. Treasury Department and her CRA, listen up. And respect.
Kim Moody, FCPA, FCA, TEP, is the founder of Moody’s Tax/Moody’s Private Client, past president of the Tax Foundation of Canada, past president of the Association of Real Estate Practitioners (Canada), and a member of the Canadian Tax Administration. and has held numerous other leadership positions. tax community. You can contact him at: kgcm@kimgcmoody.com His LinkedIn profile is www.linkedin.com/in/kimmoody.
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